In a desperate attempt to support herself and her 16-year-old son, an American woman in the American Midwest opened a brothel in her basement, with her son working behind the bar. The only reason the incident came to light was that it happened in Ferguson. The suburb of St. Louis, Missouri, has been in a state of emergency since a policeman shot and killed a black teenager, triggering violent protests.
What does the shooting have to do with the enterprising mother? It’s a sign that the mild recovery in the United States is having no effect on most Americans. Smaller cities like St. Louis, once a railroad hub and an enclave of German immigrants, and today one of the most dangerous cities in the country, are stagnating. At 7 percent unemployment, St. Louis is above the national average, while the jobless rate in the predominantly black population is above 10 percent.
Figures like these give Janet Yellen at the Federal Reserve every reason to be cautious in her assessment of real developments in the labor market. It’s true that unemployment figures are declining in the United States, with the average jobless rate currently at 6.2 percent. But the unadorned rate belies serious problems. Despite falling unemployment figures and a moderate recovery, there has been almost no growth in average incomes.
In addition, the long-term unemployment rate remains constant at 34 percent. In the United States, anyone jobless for 27 weeks or more is considered long-term unemployed and no longer qualifies for unemployment benefits. Those who no longer actively seek employment at that point are removed from the statistics. A system like Germany’s Hartz IV welfare reform program doesn’t exist. And the number of Americans working part-time because they can’t find full-time jobs also remains high. In July, 7.5 million Americans had only part-time jobs, usually with low pay.
The growing calls for Ms. Yellen to raise interest rates are falling on deaf ears.
This creates a dilemma for Ms. Yellen. On the one hand, the number of people reflected in the official unemployment statistics is moving in the direction of the unemployment rate adjusted for inflation. Inflation is currently at the Fed’s 2-percent target rate. According to all rules of monetary policy, the Federal Reserve chairwoman ought to end the low-interest rate policy and raise the prime rate, despite the lack of real improvement in the job market.
But Ms. Yellen doesn’t follow rules. She is basing her monetary policy on what is actually happening in the labor market, the only logical approach in her opinion. In doing so, she is adhering to the Fed’s double mandate to aim for both price stability and a recovery in the job market. Against this background, the growing calls for Ms. Yellen to raise interest rates are falling on deaf ears. The only question is how she intends to use the tools of monetary policy to get to the root of structural problems in the job market.
This story first appeared in WirtschaftsWoche. It was translated by Christopher Sultan. To contact the author: Angela Hennersdorf@wiwo.de